Tuesday, February 14, 2006

Myth Number 2—globalization will crush “third world” economies

The truth is that, based on the recent discussions among the economists who participated in the recent World Economic Forum in Davos, globalization is proceeding in ways that most of them do not expect. So far, globalizaton is behaving in ways that do not follow the scripts of either its enthusiasts as well as its critics.

Supporters of globalization believe that supposedly it’s a win-win situation for both the rich and poor countries. So far, it’s turning out to be zero-sum game for emerging markets. Investments have been flowing towards China and other emerging markets. The US has been growing quite well, and productivity is rising, but there has been no substantial growth in the number of American jobs. Wages in the US are not growing in sync with productivity. Trends in Europe is even worse. Because of stiff competition from abroad, Ford Motors has started shedding off thousands of workers, stoking fears that the car firm might eventually collapse.

Now, many people in the US and Europe are wondering when will the exodus of manufacturing jobs to China and other emerging markets end. Also, they thought all along that jobs in the services sector will stay in the West as these activities are supposedly "nontradable." This assumption turned out to be false as well. Because of advances in information technology, many of these service jobs are going to India and the Philippines via business process outsourcing. I guess there would be more surprises in the next few years.

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